Thursday, 21 October 2010

Roll up! Roll up! See the Great Osborno and his 10 top conjuring tricks

What a lot of smoke and mirrors George Osborne used to present his Comprehensive Spending Review. Does this make him a master political tactician - or has such tricksiness become more trouble than it is worth, given that scrutiny of the Treasury documents means that it quickly becomes apparent where the Chancellor was pulling a fast one?

It is striking how far commentators across the broad range of the political spectrum from the ardently pro-cuts right to the sceptical left - and especially the neutral wonks, who love to scour a Treasury red book, in between - quickly coalesced around the view that Osborne's presentation to the Commons was much too tricksy and misleading for his own good. "What has really saddened me is the presentation of the spending review" blogged Chris Giles, economics editor of the FT, in cataloguing several problems ranging from confusions in the fluctuating presentation - "It was impossible to know whether the numbers were in real or nominal terms, over one year or four years, annual or cumulative" - to more deliberate "deception".

So how does the Great Osborno conjure up his tricks? We couldn't claim to have uncovered this magician's full repertoire from one performance, but let's look at ten examples of sleight of hand in yesterday's CSR.

1. In the hall of mirrors - a "progressive CSR".

Its progressive, said George.

No - its regressive say the IFS. And the Fabians. And Demos. And Peter Hoskin of The Spectator pointed out that everybody else could look at the Treasury graphs. They unambiguously show that the new tax and benefit measures announced yesterday were regressive across the gradient. So that leaves the government - on tax and benefits - hiding behind Alastair Darling, still fighting its losing battle with the IFS over June's emergency budget.

On tax and benefits, the Treasury analysis remains implausibly selective and partial, as Chris Giles notes:

The distributional tables still do not include the benefit changes which hit the poor hardest despite the Institute for Fiscal Studies having done the work for the Treasury.

What about the spending? That is the main focus of the CSR. The claim to have proof of "progressive austerity" there is a new and considerably more audacious claim. Our Left Foot Forward post debunks that one.

But there is another side to the story. We're all wrong and George is right - as long as you can believe the Treasury distributional chart B3.

For in that topsy-turvy universe, the CSR spending cuts are progressive. Just as long as you can believe before breakfast what the chart sets out: simply that a similar £10 a week (£520 a year) public services cut (the cash value of services, or 'benefits in kind') would be twice as tough for a [top quintile] household on an average of £48,000 as it would for a [second quintile] household on an average of £19,000!

I'm quite impressed by the chutzpah of the *ridiculous* distributional analysis graph in the #csr. According to HMT's bonkers maths, a millionaire who loses their only state service - child benefit - does the worst of all. Insane.

2. The rabbit from the hat: "smaller cuts than Labour" (not)

Very Gordon 2007, as Joey Jones, deputy political editor of Sky News, observed:

"the final coup de grace (Brown liked a rabbit out of the hat at the end as much as the next man) was the manifestly misleading suggestion that Coalition cuts are less than those proposed by the Opposition".

On any sensible or neutral analysis, it isn't true. But at least Osborne could now never again call the Labour opposition "deficit deniers", leading Tory backbenches wondering about the value of magicking up a rabbit which damages his main (if implausible) political attack on Ed Miliband and Alan Johnson.

Osborne's claim – "we're cutting less than Labour would have" – sits oddly beside his claim that he is cutting the deficit more quickly. This sounds fishy to me, and if I were Osborne I wouldn't dwell on it.

Their hunches have been proved right. There is official confirmation from The Treasury's new "trust us" figues from the independent Office of Budget Responsibility. As Friday's Financial Times reports, the OBR figures confirm that Osborne's claim was false.

Rather than spending more than Labour on public services, figures for the Office for Budget Responsibility show that the coalition’s plans for departmental spending in 2014-15 would be £10bn less than those implied by Labour’s plans. Using consistent economic forecasts, Labour would have been able to spend £379bn on government departments in 2014-15 compared with the plans to spend £369bn, OBR figures show.

"An aide to the chancellor last night insisted that Mr Osborne’s claim was accurate because he had been using a different baseline for his comparisons". Hmmm. A quiet retreat might be more advisable. Since the OBR figures compare like-with-like, Osborne's accounting trick clearly does not do so. (For those who missed the sleight of hand, the trick depended primarily on comparing nominal averages across two different sets of non-ring-fenced departments, making the comparison strictly meaningless.

3. Sawing the arts cuts in half

Our rich and varied cultural life is also one of our country's greatest economic assets. The resource budget for the Department of Culture, Media and Sport will come down to £1.1 billion by 2014-15. Administrative costs are being reduced by 41%. 19 quangos will be abolished or reformed. All of this is being done so we can limit four year reductions to 15% in core programmes like our national museums, the frontline funding provided to our arts and Sport England's Whole Sport plans.

What Osborne did not say is that arts funding has been cut by 30% - with the Arts Council budget from £449 million to £349 million in real terms. What Osborne means is that the government hopes the Arts Council can, by halving its own costs, limit cuts to the "frontline" grants it makes to 15%. Since it has just reduced costs by 21% in a structural review, it is unlikely that there are a simple 50% "efficiency savings" on the table.

4. Don't read my lips: the £1 billion tax George left out

The Conservatives would always be highly scathing if Gordon Brown failed to blurt out to the Commons something buried in the Treasury small print. So you would never find George Osborne doing that, would you?

Oh yes, you would.

Osborne also this morning produces self-defeating "stealth tax" headlines (Telegraph) in several broadsheets, surely drawing much more more attention to his £1 billion cost on business, than if he had mentioned it in his speech, where he could have made the case that it bolstered the government's environmental credentials and was partially an attempt to simplify the current system. The EEF say it amounts to an "unsignalled and unwelcome" tax rise. The director-general of the British retail consortium says ""A tax of this size surely merits a mention in the Chancellor's speech".

George Osborne, the Chancellor, did not mention the levy in his spending cuts speech. But the details were buried in Treasury documents setting out how money will be raised to pay down the deficit.

Starting in April 2012, the Treasury plans to collect money from all businesses forced to enter its Carbon Reduction Commitment (CRC) scheme. The green measure was due to be introduced in April 2011 to force companies to buy "allowances" at £12 for every tonne of carbon dioxide they emit.

Previously, the best performing businesses would have received rebates if they reduced emissions, while poor performers would pay in full. The scheme will now simply penalise companies according to the amount of carbon dioxide they produce.

5. Virtual reality for schools: "The real increase in funding for schools" does not amount to a real terms increase at all, (especially not if the promise to fund the pupil premium from outside the schools budget was being kept).

George Osborne: We wanted to see if it was possible - even when spending was being cut - to find more resources for our schools and for the early years education of our children. I can tell the House that we have succeeded. It has meant other departments taking bigger cuts. But I believe strongly that this is the right choice for our country's future. There will be a real increase in the money for schools, not just next year or the year after - as the last government once promised - but for each of the next four years. The schools budget will rise from £35 billion to £39 billion. Even as pupil numbers greatly increase, we will ensure that the cash funding per pupil does not fall.

The funding per pupil pledge is in nominal cash terms (before inflation). The overall real terms increase in school spending will be 0.1% per year - including the £2.5 billion for the pupil premium, which Nick Clegg said just last Friday would be "additional" funding "external" to the education budget.

A senior No 10 aide said: "The money for this will come from outside the education budget. We're not just rearranging furniture – this is real new money from elsewhere in Whitehall."

The Spending Review document trumpets “real terms increases of 0.1 per cent in each year of the spending review for the 5 to 16′s school budget” – suggesting an above inflation increase. But those figures only add up if the pupil premium is included in the budget – not added to it as the Lib Dems originally dreamed. Figures supplied by the department to FactCheck show the budget will increase from £35.4bn this year, to £39bn in 2015. That means without the £2.5bn pupil premium, the schools budget would in fact shrink in real terms.

He shouldn't be surprised if his plans are not received with enthusiasm at the chalkface once schools see their budgets.

6. Too small for the naked eye?: "protecting the science budget" with cuts of 9%

It is good news that the science budget is facing smaller cuts than many had anticipated. But Osborne's claim to have "protected" the budget from cuts was clearly misleading, depending on offering a real terms cut in the form of a flat cash settlement.

Overall, average annual savings of 7.1% will be found from the Department for Business budget - the minimum it was asked to find. Within those savings, however, the Secretary of State and I have decided to protect the science budget. Britain is a world leader in scientific research. And that is vital to our future economic success. That is why I am proposing that we do not cut the cash going to the science budget. It will be protected at £4.6 billion a year.

This "cash protection" was a favoured staple trick repeated across several policy areas. Osborne said that "Sure Start services will be protected in cash terms, and the programme will be refocused on its original purpose".

The Financial Times: Although he promised to protect Sure Start services in cash terms and refocus it on its original purpose, the programme that provides for disadvantaged families with young children will face a 9 per cent cut in real terms. It will also need to employ an additional 4,200 health visitors who are currently funded by the National Health Service.

8. Now you see it ... "Not" abolishing educational maintenance allowances

The main education cuts will hit 16-19 year olds. The Educational Maintenance Allowance will be "replaced" by "targetted" support. That this will cost £50 million a year rather than £550 million shows that 90% of current spending on disadvantaged 16 and 17 year olds staying in education will go.

Chris Cook reports in today's FT: 'According to the IFS, the EMA's impact was "quite substantial". It led to a 7.4 per cent points rise in the number of young people eligible for the benefit who stayed in education for the extra two years'.

However, the EMA cuts does not even rate a mention in the Treasury's official equalities impact of the CSR. This is probably because the government does not accept that equalities impacts should adddress class disadvantage (as well as gender and ethnicity), despite Nick Clegg saying that social mobility is the government's top priority. He will undermine the point of his pupil premium if he can not show how the government will avoid a negative impact of social mobility arising from this £500 million cut.

9. The vanishing child tax credits

I was pleased to hear George Osborne put over £500 million into child tax credits, seeking to ensure that the impact on child poverty was neutral. But the TUC pointed out that CSR changes to the tax credit system will save £1.4 billion by 2014/15, compared to the £560 million cost of increasing child tax credits over the same period.

The Chancellor announced a series of changes to working tax credits today, including a 10 per cent cut in the level of childcare costs that working parents can expect to be covered by tax credits. This change alone will mean that low income families with two children could lose up to £30 a week - or £1,560 a year.

The Treasury's own Equality Impact Assessment of the CSR says that this move will hit lone parents particularly hard.

Other cuts to tax credits include a freeze in the annual value of several tax credit elements and a requirement that couple households with children do 24 hours of work a week (compared to the current 16 hour limit) before qualifying for working tax credits (and consequently receiving any childcare support at all).

10. Moving the NHS goalposts?

Will Straw of Left Foot Forward yesterday noted a mysterious £2.5 billion moving of the baseline for health spending since June's budgets, before the pledge to protect health spending in real terms begins. We await to see if there is a sensible explanation of that one.

But the ring-fence can also be breached in practice by transferring other areas to it.

Osborne: Grant funding for social care will be increased by an additional £1bn by the fourth year of the Spending Review. And a further £1bn for social care will be provided through the NHS to support joint working with councils – so that elderly people do not continue to fall through the crack between two systems."

John Rentoul in The Independent notes that this burden-sharing idea is "a nice way of selling what is actually a political sleight of hand: moving some of the costs of social care from squeezed local-council budgets to the NHS budget, protected by the Conservative election promise".

***

There may be many other conjuring tricks to find, as The Independent reports on the benefit changes, where "the fine print reveals that the Chancellor is aiming to save money by curtailing entitlement to benefits, rather than the rate at which benefits are paid. A significant number of people will lose their eligibility for housing benefit, council tax benefit and out-of-work benefits."